1. Shri Ambica Mills Ltd. v.

State of Gujarat– It was held that the petitioners were as

good as parties to the proceedings, though their names were not expressly mentioned
as persons filing the petitions on behalf of the company. The managing directors in
their individual capacities may not be parties to such proceedings but in the official
capacity as managing directors and as officers of the company, they could certainly be
said to represent the company in such proceedings. Also as they were required to so
act as seen from the various provisions of the Act and the Rules they could not be said
to be total strangers to the company petition.
2. FRAUD AND IMPROPER CONDUCT-

The courts have been more than prepared to pierce the corporate veil when it feels that fraud
is or could be perpetrated behind the veil. The courts will not allow the Solomon principle to
be used as an engine of fraud. The two classic cases of fraud exception are Gilford Motor
Company Ltd v. Horne and Jones v. Lipman.

In the first case, Mr. Horne was an ex-employee of The Gilford motor company, and his
employment contract provided that he could not solicit the customers of the company. In
order to defeat this, he incorporated a limited company in his wife's name and solicited the
customers of the company. The company brought an action against him. The Court of appeal
was of the view that "the company was formed as a device, a stratagem, in order to mask the
effective carrying on of the business of Mr. Horne. “In this case, it was clear that the main
purpose of incorporating the new company was to perpetrate fraud.” Thus the court of appeal
regarded it as a mere sham to cloak his wrongdoings. In the second case of Jones v. Lipman a
man contracted to sell his land and thereafter changed his mind in order to avoid an order of
specific performance he transferred his property to a company. Russel J specifically referred
to the judgments in Gilford v. Horne and held that the company here was "a mask which (Mr.
Lipman) holds before his face in an attempt to avoid recognition by the eye of equity" he
awarded specific performance both against Mr. Lipman and the company. Under no
circumstances will the court allow any form of abuse of the corporate form and when such
abuse occurs the courts will step in. The three aspects of fraud, which needs to be looked at
before the corporate veil can be, lifted which are:

The motives of the fraudulent person in considering whether the corporate form has been
used in such a way as to justify the lifting of the corporate veil, the court stated that the
correct test in relation to groups of companies was whether the company had been used as a
"mere facade concealing the true facts" applying this test Slade J. said that the "motives of the
perpetrator may be highly material" in both the classic cases intention to deceive the plaintiff
was very much present, however, it was not so in Adams v. Cape Industries. So the point that
needs to be determined is whether the motive is necessary for the fraud exemption to exist.
However, to get any answer it is also important to find out the nature of the legal right that is
being denied to the plaintiff. The character of the legal obligation being evaded In the classic
cases the defendants sought to avoid the legal obligations that existed prior to their
incorporation, the main motive of incorporation was to avoid the performance of the legal
obligation. In Adams v. Cape, there was some discussion about the need to allow the veil to
be lifted in order to prevent Cape from avoiding publicity as to its involvement in the sale of
asbestos to America and to prevent the cape from having any practical benefit of the group's
asbestos trade in the states without the attendant risks of tortuous liability. However, the
tortuous liability was purely speculative. In case no legal right is existent the intention on part
of the defendant to deceive the plaintiff must be speculative and hence less substantial in
nature.

Timing of the incorporation of the device company

3. Creasey v. Breachwood Motors Limited

In this case, the reason for the failure of the fraud exception was the timing of incorporation
of the sham company. BW became insolvent and BM took over the business entirely except
plaintiff’s claim. Plaintiff obtained an order for damages and interest however before he
received anything, BW was dissolved. The plaintiff sought an order substituting BM for BW
on the grounds of justice. This a very controversial case and should have been decided on the
basis of the classic cases as it should not matter whether device companies were created to
avoid the legal obligation or whether they were in existence. Creasey should have been
otherwise decided maybe on the grounds of justice.

Reference may also be made to the Supreme Court Judgements in Delhi Development
Authority v. Skipper Construction Co. (P) Ltd. 10 and New Horizons Ltd. v. Union of India .
In Skipper case, the issue related to the adoption of the device of incorporation by certain
individuals for committing illegalities and to defraud people. After referring to the authorities
and the case law, the Court reiterated the proposition that where the corporate character is
employed for the purpose of committing illegality or for defrauding others, the Court would
ignore the corporate character and will look at the reality behind the corporate veil so as to
enable it to pass appropriate orders to do justice between the parties concerned. "The fact that
Tejwant Singh and members of his family have created several corporate bodies does not
prevent this court from treating all of them as one entity belonging to and controlled by
Tejwant Singh and family if it is found that these corporate bodies are mere cloaks behind
which lurks Tejwant Singh and/or members of his family…….".

The case of New Horizons Ltd. (NHL) presented very interesting situation. New Horizons
was a joint venture company, which had submitted a tender for printing, etc. of telephone
directories for the Department of Telecommunications, Telecom District, Hyderabad. The
company claimed to possess the requisite experience, which was actually the experience of its
promoter companies. The Department rejected the offer on the ground of non-fulfillment of
the condition by the applicant company. This rejection was upheld by the High Court. In the
view of the High Court, it could not be said that the authorities had failed in their duty to look
behind the facade of corporates of NHL, and it was none of their duty and they rightly
examined the experience, etc., of NHL and came to the conclusion that it did not satisfy the
eligibility conditions. Disagreeing with the High Court, the Supreme Court found that the
facts and the "realities of the situation", required departing from the narrow legalistic view.
“Once it is held that NHL is a joint venture, as claimed by it in the tender, the experience of
its various constituents, namely, TPI, LMI, and WML as well as IIPC, had to be taken into
consideration if the tender evaluation committee had adopted the approach of a prudent
businessman". According to the Court, the conclusion would not be different even if the
matter was approached purely from a legal standpoint.

Certain other points to ponder upon:

• Sometimes, in the case of a group of enterprises the Solomon principle may not be adhered
to and the court may lift the veil in order to look at the economic realities of the group itself.

• A company having the power to act as an agent may do so as an agent for its parent
company or indeed for all or any of the individual members if it or they authorize it to do so.
If so the parent company or the members will be bound by the acts of its agent so long as
those acts are within the actual or apparent scope of the authority. But there is no
presumption of any such relationship in the absence of an express agreement between the
parties it will be difficult to establish one.

The courts may pierce the corporate veil to look at the characteristics of the shareholders.
• In times of war, the court is prepared to lift the corporate veil and determine the nature of
shareholding.

• At times tax legislations warrant the lifting of the corporate veil. The courts are prepared to
disregard the separate legal personality of companies in case of tax evasions or liberal
schemes of tax avoidance without any necessary legislative authority.